Tatas to give wings to crisis-hit AirAsia India, invest Rs 300 cr via OCDs

To pump money in airline as joint venture partner stops funding

Tata Sons will pump money into its low-cost aviation venture AirAsia India against the inability of Malaysian airline AirAsia Berhad, the joint venture partner, to fund the company. 

Tata Sons owns 51 per cent in the joint venture while AirAsia Berhad has the rest.

Funding will be through optionally convertible debentures (OCDs), which will allow Tata Sons to convert the debt into equity at a later stage. 

This will reduce the stake of AirAsia Berhad, which is looking to exit the joint venture while it fights to mitigate the impact of the pandemic back home in Malaysia. Tata Sons has invested around Rs 550 crore through OCDs.

Sources said in a board meeting held this week, a resolution was passed to invest Rs 300 crore further through OCDs. Together, if converted into equity, this will increase the stake of the conglomerate close to 70 per cent and reduce AirAsia Berhad’s stake to 30 per cent.

The call option on the debenture, which will convert the debt into equity, can be exercised after December 31 this year.

“There has been an assurance from the Tata group that business is as usual and there is no chance that the airline will shut down due to lack of funds,” a person aware of the development said.

Buoyed by the assurance, the AirAsia India management has assured its travel agent partners, aircraft lessors, and employees that there is no threat of the airline shutting down.

The airline will be inducting five new aircraft, starting the third week of October. The airline has cleared pre-delivery and lease payment to GECAS, the American aviation financing and leasing company from which it is leasing the five Airbus A320 Neo. The airline has 30 aircraft.

“There has been no default on payment to lessors, airports, oil firms, or any business partners and they have been assured there won’t be any,” the person said.

Cost restructuring is also underway, with the airline cutting down on unviable destinations like Chandigarh and Agartala.

However, sources said the separation between the joint venture partners was certain with negotiations between Tata Sons and the billionaire owner of the AirAsia group, Tony Fernandes, in final stages over the price of shares.

The initiative to break dependence on its Malaysian partner had started a year ago. AirAsia India’s commercial unit has a full-fledged office in Gurugram and established a crew-training unit in Bengaluru.

Recently, the airline gave the mandate to Navitaire — a technology company — to build its own booking website.

Tata Consultancy Services (TCS) is working to build crew-scheduling software, which currently is being handled in Kuala Lumpur. The AirAsia group is restructuring its business. 

On Monday, the company said in a filing with the Malaysian stock exchange that it was ceasing the operations of its Japanese affiliate, in which it had a 66.9 per cent stake.

On Tuesday the group’s long-haul arm, AirAsiaX, announced it would do an overhaul that included restructuring its debt and consolidating its shares.

Analysts said it would be positive for AirAsia to quit the Indian venture.

“We may turn even more positive should AirAsia Group cease the operations of 49 per cent-owned AirAsia India as well. For FY21, we forecast AirAsia Group to recognise its share of loss from AAI as a larger RM275 million (around Rs 400 crore),” Maybank Investment Bank said.

Keeping it afloat 

• Tata Sons has invested around Rs 550 crore in AirAsia 
• India through optionally convertible debentures
• Tatas to pump another Rs 300 cr in the airline via same route 
• Airline will soon be inducting 5 new aircraft
• Cost restructuring underway, with the airline cutting down on unviable destinations like Chandigarh and Agartala